Cabat Trade & Finance (Pty) Ltd and Security Mills (Pty) Ltd v The Movement for Democratic Change (MDC-T)

The first plaintiff (Cabat Trade & Finance (Pty) Ltd), a South African company, and the second plaintiff (Security Mills (Pty) Ltd) claimed payment of ZAR 4,627,863.93 for goods sold and manufactured for the defendant (MDC-T), a Zimbabwean political party. The goods consisted of approximately 149,887 T-shirts and bandanas allegedly ordered in April 2008 by Eddie Cross and Simon Spooner on behalf of the defendant for use in Zimbabwe's Presidential election campaign. The plaintiffs alleged that around 74% of the goods were manufactured and delivered to the defendant, who accepted and used them but refused to pay. The main claim was based on actio venditi (contract of sale), with an alternative claim based on unjust enrichment. The defendant denied that Cross and Spooner had authority to enter into the contract, denied receiving the goods, and raised a special plea in bar based on illegality for contravention of Zimbabwe's Exchange Control Regulations of 1996, which prohibited payment to foreign residents without authorization from the Exchange Control Authority. The plaintiffs argued that Cross had ostensible authority based on a prior similar transaction that was paid for, and that the defendant was estopped from denying the contract.

• Whether Eddie Cross and Simon Spooner had actual or ostensible authority to enter into the contract on behalf of the defendant
• Whether the contract was illegal and unenforceable for contravening sections 10 and 11 of the Exchange Control Regulations of 1996
• Whether a special plea in bar was the appropriate procedural mechanism to raise the illegality issue
• Whether the doctrine of unjust enrichment could be used to enforce an otherwise illegal contract
• Whether estoppel could operate to prevent the defendant from raising illegality as a defence

The plaintiffs' main claim (actio venditi) and alternative claim (unjust enrichment) were dismissed with costs on the ordinary scale. The defendant's special plea in bar based on illegality was upheld, disposing of the entire case.

A contract that requires payment to a foreign resident outside Zimbabwe without authorization from the Exchange Control Authority contravenes sections 10(1)(a) and (c) and 11(1)(a) and (b) of the Exchange Control Regulations of 1996 and is therefore illegal and unenforceable. The maxim ex turpi causa non oritur actio (no action arises from an illegal cause) is absolute and admits of no exception—an illegal agreement will never be enforced by the courts. The doctrine of unjust enrichment cannot be used to enforce an illegal contract or to achieve what would amount to enforcement of such a contract. Estoppel cannot operate to prevent a defendant from raising illegality as a defence to a claim based on an illegal contract. Courts are bound to refuse to enforce contracts prohibited by law even where the plaintiff is innocent, the defendant is relying on its own illegality, or no objection to illegality is raised by the parties. A special plea in bar is an appropriate procedural mechanism for raising illegality where it raises a matter of substance that does not involve going into the merits and, if allowed, will dispose of the case.

The court made observations on the proper form and requirements of a special plea in bar, noting that it must raise a matter of substance which does not involve going into the merits of the case and which, if allowed, will dispose of the case. The court cited authorities defining a special plea as one that raises a special defence not apparent from the declaration which either destroys or postpones the operation of the cause of action. The court noted that a special plea proceeds on the basis that the allegations in the plaintiff's declaration are correct but should nevertheless be disposed of for reasons not apparent ex facie the pleadings. The court also commented that ideally a plea of illegality should be raised before trial and not in limine, though citing several cases where illegality was successfully raised as an exception or special plea. The court observed that because the special plea in bar disposed of the case, it was unnecessary to consider the various exceptions and applications to strike out that had been filed by the parties, thereby avoiding pronouncement on the technical disputes about the proper pleading of unjust enrichment claims.

This case is significant in Zimbabwean law for reinforcing the strict application of exchange control regulations and the principle that courts will not enforce contracts that contravene statutory provisions, regardless of the perceived injustice to an innocent party. It confirms that: (1) illegality can properly be raised by way of special plea in bar or exception; (2) the maxim ex turpi causa non oritur actio is absolute and admits of no exception; (3) the doctrine of unjust enrichment cannot be used as a mechanism to circumvent or enforce an otherwise illegal contract; (4) estoppel cannot operate to prevent a defendant from raising illegality as a defence; (5) courts are bound to refuse to enforce illegal contracts even where no objection is raised by the parties or where the plaintiff is innocent and the defendant is relying on its own illegality; and (6) contracts requiring payment to foreign residents without Exchange Control Authority authorization are illegal and unenforceable under sections 10 and 11 of the Exchange Control Regulations of 1996. The decision emphasizes the public policy considerations underlying exchange control legislation and the courts' duty to refuse enforcement of illegal contracts regardless of the equities between the parties.